Gold Miners’ Q2’19 Preview

The gold miners’ stocks continue to rally on balance after a major upside breakout extended their strong upleg. That’s driving mounting interest in this recently-forsaken sector. With the latest quarterly earnings season underway, traders will soon enjoy big fundamental updates from the gold miners. They are likely to report good Q2 results, with improving operational performances supporting further stock-price gains.

Four times a year publicly-traded companies release treasure troves of valuable information in the form of quarterly reports. Companies trading in the States are required to file 10-Qs with the US Securities and Exchange Commission by 40 calendar days after quarter-ends. The gold miners generally release their quarterly reports in the latter half of that window. So Q2’19’s will arrive between late July to mid-August.

After spending decades intensely studying and actively trading this contrarian sector, there’s no gold-stock data I look forward to more than the miners’ quarterly financial and operational reports. They offer a true and clear snapshot of what’s really going on, shattering the misconceptions bred by ever-shifting winds of sentiment. Nearly all fundamental analysis is based off the data gold miners provide in quarterlies.

So for many years, I’ve delved deeply into gold miners’ quarterly results. They are the dominant source of information I use to winnow down the universe of gold stocks to the fundamentally-superior ones with the greatest upside potential. Every quarter after their latest earnings season ends, I research and write essays discussing the newest results from the major gold miners, mid-tier gold miners, and silver miners.

Q2’19’s full analyses are coming starting in mid-August once that 40-day post-quarter reporting deadline has passed. But before that I eagerly dive into individual companies’ results as they’re reported since there’s so much to digest. Even earlier soon after a quarter ends, I start thinking about what gold miners’ latest quarterly results are likely to show collectively. Their aggregate trends can be somewhat predicted.

In high-level fundamental terms, gold mining is a simple business. These companies painstakingly wrest gold from the bowels of the Earth, then generally sell all they can produce at prevailing market prices. So their profits are effectively the difference between current gold levels and operating costs. The former is easy to calculate once a quarter ends, and the latter can be reasonably estimated for this sector as a whole.

Gold’s dramatic bull-market breakout a month ago and high consolidation since have greatly improved sector psychology. But gold’s big surge came late in Q2, minimizing its full-quarter impact. The early quarter was rough, with gold slumping to a new year-to-date low near $1271 in early May. The average gold prices in April, May, and June were $1286, $1284, and $1361. Gold was mostly sucking wind last quarter.

Thus Q2’19’s overall average gold price of $1309 was just a meager 0.4% better than Q1’s $1303. So the gold miners’ latest quarterly results aren’t going to get much help from gold’s young surge. That will really change in the current Q3 if gold can hold these high levels. With Q3 about 1/5th over, gold has averaged an awesome $1407 so far! So the higher-gold boost to gold-stock earnings is coming, but not in Q2.

Gold stocks really leverage higher gold prices because their mining costs are largely fixed. Quarter after quarter mining operations generally require the same levels of infrastructure, equipment, and employees. The vast majority of any gold mine’s future cost structure is actually determined during its planning phase when engineers decide which ore to mine, how to excavate it, and how to process it to recover the gold.

Every quarter after results I analyze the all-in-sustaining costs reported by the world’s gold miners. These are the best measure of what it really costs to produce an ounce of gold. Over the past four quarters, the major gold miners of the leading GDX VanEck Vectors Gold Miners ETF reported average AISCs of $856, $877, $889, and $893. That, in turn, yields a trailing-four-quarter mean of $879 per ounce, a key cost metric.

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